Nvidia stock tumbles as AI chip competition heats up

• Nvidia stock fell as much as 5% on Tuesday as competition in the AI chips market heats up.
• Intel announced its AI accelerator chip, Gaudi 3, which competes directly with Nvidia's top-selling AI chips.
• Alphabet also unveiled its in-house developed chips to help cut costs related to AI.

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Nvidia stock fell as much as 5% on Tuesday as competitors in the highly lucrative market for AI chips unveiled big developments. 

Direct competition from Intel appears to be ramping up, with the company showcasing its new AI chip, called Gaudi 3, on Tuesday.

The Gaudi 3 chip is set to compete directly against Nvidia's H100 AI chips, which have helped power much of Nvidia's surge in revenue and income over the past year.

According to Intel, the Gaudi 3 AI accelerator is projected to offer 50% better inference performance than Nvidia's H100, and is about 40% more power efficient than the H100. Intel said its new AI chip will be priced "a lot lower" than Nvidia's AI chips. 

While the Gaudi 3 offers compute and power efficiency gains relative to the H100, it is unclear how the chip stacks up to Nvidia's next-generation Blackwell chip, which was announced last month and is the successor to the wildly successful H100 chip. 

Intel said its new AI accelerator chip would be available to different companies including Dell, HPE, and Supermicro in the second quarter. 

Alphabet is also getting in on the chip business with the in-house development of its Axion chip, which would help power Google's big-data analysis and help reduce the company's reliance on Nvidia.

While some analysts on Wall Street see Google's Axion chip as a direct competitor to Nvidia, Google vice president Amin Vahdat said, "I see this as a basis for growing the size of the pie."

The Axion chips are CPU-based and can handle a range of tasks related to the AI workload.

While Nvidia is set to face increased competition, Big Technology founder Alex Kantrowitz told CNBC on Tuesday that the company's edge in AI-related software is what will set it apart from other chip companies.

"The fact that developers look to Nvidia's software to both train and run these AI models just gives it an advantage that is very difficult to catch up to. Intel can tell us all day long about how powerful its chips are, it doesn't have that software advantage that Nvidia does, and that means AI developers are locked into the Nvidia ecosystem," Kantrowitz said.